Appendix A Reading Notes

Question 1

What is an account?

Answer 1

A section of double entry bookkeeping system that deals with one particular asset, claim, expense or revenue

Question 2

Where are individual accounts recorded?

Answer 2

In accounts / journal entries

Question 3

What are examples of accounts?

Answer 3

Equity
Cash
PPE
Sales revenue
Accounts payable
Borrowings

Question 4

Debits on the…
Credits on the…

Answer 4

Debits on the left
Credits on the right

Question 5

What is double entry bookkeeping?

Answer 5

Each transaction impacts two or more accounts

Question 6

What are ‘trading transactions’?

Answer 6

Involving revenue and expenses (sales & purchases

Transactions involving a trade of goods/services. These transactions impact the income statement.

Question 7

What is the accounting equation?

Answer 7

Assets = Liabilities + Equity

Question 8

What are the 3 debit accounts?

Answer 8

Dividends, Expenses, Assets

Question 9

What are the 3 credit accounts?

Answer 9

Liabilities, Equity, Revenue

Question 10

Are assets & expenses closely linked?

If so, why?

Answer 10

Yes.

This is because assets transform into expenses as they’re used up

Question 11

Why do businesses summarise their individual accounts periodically?

Answer 11

• To see at a glance how much is in each account
• to check the accuracy of the bookkeeping

Question 12

What is c/d

Answer 12

Carried down amount

Closing balance

Question 13

What is b/d?

Answer 13

Brought down amount

Opening balance

Question 14

What is a trial balance?

Answer 14

A totalled list of the balances on each of the accounts in a double entry bookkeeping system

Question 15

What is trial balance order?

Answer 15

Assets, Liabilities, Equity, Revenue, Expenses

Question 16

What must happen to a trial balance before financial statements are produced?

Answer 16

Adjustments

Question 17

What is the purpose of the income statement?

Answer 17

Shows the company’s profit & loss over a period

Shows the company’s financial performance

Question 18

What is the profit/loss at the end of a period referred to as?

Answer 18

Net Income

Accumulated deficit if negative
Retained earnings if positive

Question 19

Where are retained earnings put at the end of an accounting period?

Answer 19

Owners Equity account

Question 20

What does the balance sheet portray?

Answer 20

non-current/current assets
non-current/current liabilities
equity

Question 21

What are the 4 financial statements?

Answer 21

SOFP
SOCF
P&L
SOCE

Question 22

What is the flow of financial statements?

Answer 22

Income statement
Statement of stockholder’s equity
Balance sheet
Statement of cash flows

Question 23

What is a ledger?

Answer 23

The book in which the accounts are traditionally kept

Question 24

What are the various divisions in ledgers?

Answer 24

The cash book
The sales ledger
The purchases ledger
The nominal ledger
The general ledger

Question 25

Deferrals = cash first/last?

Answer 25

Deferrals = Cash first

Unearned revenue & prepaid expenses

Question 26

Accruals = cash first/last?

Answer 26

Accruals = cash later

(Accrued expenses & accrued revenue)